Tribunal allows depreciation on storage tanks & upholds deduction eligibility under Section 80IA

The Tribunal partly allowed the appeals filed by M/s. Friends Oil & Chemical Terminals Pvt. Ltd. and M/s. Friends Salt Works & Allied Industries. It directed the Assessing Officer to allow depreciation on storage tanks at a rate of 15% as claimed by the Assessee. Additionally, the Tribunal upheld the Assessee's eligibility for deduction under Section 80IA for the income derived from operating and maintaining the storage tanks, considering them an integral part of the port operations. The grounds related to the lack of opportunity for cross-examination and insufficient time were dismissed as they were not pressed before the Tribunal.

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Issues Involved:
1. Depreciation rate applicable to storage tanks.
2. Eligibility for deduction under section 80IA of the Income Tax Act.
3. Opportunity for cross-examination of the Secretary, Kandla Port Trust.

Issue-wise Detailed Analysis:

1. Depreciation Rate Applicable to Storage Tanks:
The primary issue in the appeals filed by M/s. Friends Oil & Chemical Terminals Pvt. Ltd. and M/s. Friends Salt Works & Allied Industries was the classification of storage tanks for depreciation purposes. The Assessee contended that the storage tanks should be classified as "Plant and Machinery" and thus eligible for a 15% depreciation rate, rather than being classified as "Buildings" and subjected to a 10% depreciation rate.

The Assessee argued that the storage tanks were not simple RCC structures but were made of specific quality iron and steel, fitted with specific equipment and facilities for handling liquid cargo and chemicals. These tanks could be bodily lifted and placed elsewhere, thus qualifying as "Plant and Machinery" under Section 43(3) of the Income Tax Act. The Assessee supported this claim by citing previous Tribunal decisions and various High Court rulings, including CIT v. Mahant Oil Industries Pvt. Ltd. and CIT v. Electro Metallurgical Works Pvt. Ltd.

The Revenue, however, argued that the storage tanks were simple structures used for storage purposes and did not qualify as "Plant and Machinery." The Tribunal, after reviewing the submissions, concluded that the storage tanks were indeed part of the plant and machinery, as they were essential for the Assessee's business operations. The Tribunal directed the AO to allow depreciation at the rate of 15%, as claimed by the Assessee.

2. Eligibility for Deduction under Section 80IA:
The second issue was whether the Assessee was eligible for a deduction under Section 80IA for the income derived from the operation and maintenance of storage tanks, which were considered an integral part of the port.

The AO had disallowed the deduction on the grounds that there was no specific agreement between the Assessee and the Kandla Port Trust (KPT) for the development of such facilities. The CIT(A) upheld this view, stating that the infrastructure facilities developed by the Assessee did not form part of the port operations as per the KPT's clarification.

The Assessee argued that the development of storage tanks and other infrastructure on leased land from KPT qualified for the deduction under Section 80IA, supported by CBDT Circular No. 10/2005, which included structures at ports for storage, loading, and unloading within the definition of "port" for the purposes of Section 80IA. The Assessee also provided a certificate from KPT stating that the facilities formed part of the port operations.

The Tribunal, after considering the submissions and relevant case laws, concluded that the Assessee had developed, built, maintained, and operated the infrastructure facilities in compliance with Section 80IA(4)(i)(b). Thus, the Assessee was eligible for the deduction under Section 80IA.

3. Opportunity for Cross-Examination:
The Assessee raised grounds regarding the lack of opportunity to cross-examine the Secretary of KPT based on whose reply the appellate order was passed, and the insufficient time provided to submit a reply.

However, these grounds were not pressed before the Tribunal during the hearing, and thus, they were treated as dismissed.

Conclusion:
The appeals for the assessment years 2006-07 and 2008-09 were partly allowed. The Tribunal directed the AO to allow depreciation on storage tanks at the rate of 15% and upheld the Assessee's eligibility for deduction under Section 80IA. The grounds related to cross-examination and insufficient time were dismissed as not pressed.

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